Tuesday, August 11, 2009

It's all in a name

The Federal Reserve Board has been meeting this week and is expected (this means they’ve leaked the news to reporters) to keep the rate they loan money to banks at zero percent. They are also expected to stop buying Treasury Bonds in the near term when they reach the 300 billion dollar total purchases. This is already driving up bond futures markets with speculation that nobody will buy bonds at current interest rates.

The NY Fed is also on a hiring binge, adding hundreds of new traders to manage its securities holdings that have already gone past two trillion Dollars. The manner in which they acquired these "assets" was in such a way as to inflate the value far beyond what they were really worth. This was a huge windfall for the large banks that unloaded these securities. That would be the same banks that have been reporting huge profits.

The money supply has been growing at a breathtaking rate but actual numbers are hard to come by as the Fed stopped publishing the information several years ago. When they stopped this was the first clue that we would be living in interesting times. Meanwhile debt has been disappearing, especially in the commercial and industrial category with tens of billions being taken off the books. Consumer debt has also been declining at a sharp angle. Still the large banks are making huge profits and paying staggering bonuses while doing less and less "real" business.

Lets all print up some pretty paper and pass it around between ourselves and we can all be rich. One small problem is that the middle class that does all the work has to believe the paper we printed is worth something or at least China has to be willing to loan us money to buy Chinese made goods to sell to the middle class so that they keep believing. Sounds crazy if you and I talk about doing such a thing, we’d be locked up in jail if not in the asylum. Of course we aren’t related to the Prescott or Bush families, if we were we could go ahead and do that. It’s all in a name.

By the way, financial stocks pulled the market down over a hundred points today.